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Negotiations about the cutting of the Greek debt have not yet been completed, as a month after the relevant decisions were made there are still disagreements on a number of key issues between Greek authorities and the representatives of the banks. Indicative of the current situation is the fact that the head of the Institute of International Finance (IIF), Charles Dallara, who during the week had set as a target the completion of the discussions by the end of 2011, yesterday extended the negotiations to 2012.

"I would not say that we have made significant progress," said Charles Dallara, and stressed that while the objective of both parties is to complete the negotiations in 2011, there is a possibility that they might be continued in 2012 as well. He added of course that "we will stay on the subject until we reach an agreement."

Greek Prime Minister Lucas Papademos in turn, stressed yesterday that "the request of the creditors was not accepted," for the new Greek state bonds, which will replace the existing ones, to be subject to English law. In a speech before the Parliament Lucas Papademos stressed that while negotiations with private investors are still ongoing there will be different information, but nothing should be considered certain until the procedure is completed. Therefore, "it wouldn’t be appropriate or responsible to publicize data related to our national position."

At the same time, he made his position clear on the agreement from October 27^th and on the participation of private investors in the new rescue package for Greece (PSI +). "I'm not against the restructuring of the Greek debt, given the levels it has reached," said Mr. Papademos, adding that "comments that I made before refer to specific parameters of the procedure. I believe that the decisions taken on October 27^th have formed a framework that will lead to the desired result."

In any case, the Greek Prime Minister said that at present nothing was certain. According to information, open issues in the negotiations between Greek authorities and the banks are as follows:

1. Interest rates on the new bonds. Private investors want the interest rate on the new bonds, which they will buy to be 8% and be increased proportionally with the increase in the Greek GDP. Thus, their losses in terms of the net present value (NPV) will reach about 52-54%. Conversely, the Greek side insists on an interest rate in the range of 4.5 to 5% so as for the debt to be viable. This, however, would mean losses for the banks with a net present value of about 70-75%.

2. How will the 30 billion euro be utilized, which the eurozone will provide for the exchange of the bonds (PSI +). Greece wants to use them to repay part of the Greek debt in cash. Private investors want these funds to become guarantees of the European support mechanism.

3. Whether the new bonds should be subject to the English or Greek law. If new bonds are subject to Greek law, the state will have greater flexibility in the case of a potential future debt restructuring. On the other hand, if they are subject to English law, the holders of the bonds will be better protected.

4. With the help of what type of shares will the recapitalization of Greek banks be effected. The Institute of International Finance (IIF) insists on the issue of preference shares, while the Greek government wants ordinary shares to be issued.

One more problem should be added to these issues. It is related to the possibility of the European Financial Stability Fund (EFSF) obtaining from the markets the amounts required for completion of the PSI + and the new programme for Greece. Only by the end of February, the Fund will have to have granted to Greece a loan of 89 billion euro. An amount that is very large for the current state of affairs. What is now clearly visible, is that in the exchange of the bonds PSI +, bonds held by private individuals which have been estimated at 5 billion euro will not be included.

Moreover, the climate in Europe is getting worse for Greece. Analysts from the Swiss Agency UBS see at least one mandatory restructuring of the Greek debt and a potential activation of risk premiums against the bankruptcy of the state (CDSs), although in their general scenario they do not believe that the country will give up the common currency. According to them, even if the exchange of bonds (PSI +) is successful, this will not allow the Greek government debt to be sustainable, as the debt of the official sector will not be included (International Monetary Fund, European Central Bank and European Union).